Most non-bank lenders in Latvia to fold at end-2019 or in early 2020 - association

Most non-bank lenders in Latvia will fold either at the end of next year or in early 2020, the Alternative Financial Services Association of Latvia told LETA.

"Most companies in the non-bank lending sector will cease their operations in Latvia at the end of 2019 or in early 2020, which means that short-term loans will become unavailable to residents," said the association, explaining that amendments to the Consumer Rights Protection Law, due to come into force in mid-2019, would curb interest rates on loans issued by non-bank lenders. As a result, the cost of lending process will become disproportionate to non-bank lenders.

"During the pre-election frenzy, politicians passed amendments that would have an impact on the availability of credit in Latvia. We see that banks mostly issue loans larger than EUR 500, while smaller loans were until now issued by non-bank lenders. Once the amendments come into force, short-term loans will become unavailable in Latvia as of July," said the association's head Gints Aboltins.

The association predicts that non-bank lenders will stop issuing new loans in July and, for a few more months, continue to service loans they will have issued by that time.

The amendments will push smaller lenders out of the market, thereby further reducing competition on the market of financial services, said Aboltins. The larger lenders, which have sufficient resources, will try to compete with banks in the segment where loan amounts are larger and repayment schedules longer, he added.

The association also reminds that, taking into account that the amendments are against the Constitution, a petition will be filed with the Constitutional Court, asking the court to look into the controversial amendments.

According to the amendments that will come into force on July 1, 2019 the total cost of a consumer loan will be limited to 0.07% of the principal amount per day. It means that the maximum commission on a loan of EUR 100, issued for a period of 30 days, will be EUR 2.1, which does not cover the cost of the lending process.

EU economy’s future: slow but positive growthGrowth in all EU states will continue in 2019-20, though at a slower pace than before. The largest EU’s economies will grow at around 1,5-1,7%, mostly in Poland, Spain and Holland. The Baltic States’ growth will continue to be on the positive trend.